Hostess mediation fails, so Twinkies company to liquidate

Nov. 20, 2012
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A cashier rings up boxes of Hostess Twinkies and Cup Cakes at the Hostess Brands' bakery in Denver on Friday. The bankrupt company said Tuesday night that mediation talks with striking workers had failed and that liquidation would proceed Wednesday. / Brennan Linsley, AP

The union, which represents about 30% of the company's 18,500 workers, walked out Nov. 9. Hostess closed its 33 plants on Friday and sent workers home as it seeks court approval to wind down its iconic brands and sell its assets.

Bankruptcy Judge Robert Drain urged Hostess and the union to mediate. "Not to have gone through that step leaves a huge question mark in this case," he said Monday.

Hostess, weighed down by debt, management turmoil, rising labor costs and the changing tastes of Americans, decided on Friday that it no longer could make it through a conventional Chapter 11 bankruptcy restructuring. Instead, the company, which is based in Irving, Texas, asked the court for permission to sell its assets and wind down its business.

The company, which is in its second bankruptcy in less than a decade, had said that it was saddled with costs related to its unionized workforce. It brought on Rayburn as a restructuring expert in part to renegotiate its contract with labor unions.

Hostess, which had been contributing $100 million a year in pension costs for workers, offered workers a new contract that would've slashed that to $25 million a year, in addition to wage cuts and a 17 percent reduction in health benefits. The baker's union rejected the offer and decided to strike.

By that time, Hostess had reached a contract agreement with its largest union, the International Brotherhood of Teamsters, which urged the bakers union to hold a secret ballot on whether to continue striking. Although many workers in the bakers union decided to cross picket lines this week, Hostess said it wasn't enough to keep operations at normal levels.

Hostess CEO Gregory Rayburn said that the strike was the death knell because the company was operating on razor-thin profit margins. But the bakers union blamed mismanagement, including big debt and big raises executives got last year, as the company headed for its second bankruptcy filing.

No comment yet from the union.

Earlier in the day, union President Frank Hurt, who did not attend the talks, said from his Columbus, Ohio, home he was "not too optimistic about this mediation," the Wall Street Journal says.

Wall Street bankers have said that rivals, including Flowers Foods and Mexico's Grupo Bimbo, were "very likely to be interested in parts, but not all of, the brands," Reuters writes. Private-equity firms -- including Sun Capital Partners and Metropoulos & Co. -- are also interested.